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UNIVERSITY OF NEW YORK IN PRAGUE

        European Business Administration

 Analysis of L'Oreal's International Marketing
                   Strategy

                       by

                  Soline Danger

2015/2016                     Mentor: William Pattison

I would like to express my sincere gratitude to my mentor William Pattison, for his

guidance, invaluable advices and suggestions. Thanks to his inspirational support in

the class of International marketing strategies, I had all the help that I needed to

create my thesis.

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Table of contents

I.     The history of L’Oreal……………………………………………………..8
       a. The beginning with Eugène Schueller………………………………...8
       b. The pursuit of the dream……………………………………………..10
       c. The expansion………………………………………………..………12
       d. The challenge of nowadays…………………………………………..15
II.    The external environment………………………………………….……..17
       a. The market……………………………………………………………17
       b. The different types of company……………………………………...18
            i. The “players” ………………………….……………………..18
            ii. The luxury group……………………..………………………21
           iii. The diversified companies………………...…………………22
       c. Porter’s five forces…………………………………………………...24
            i. The intensity of the competition……………………………...25
            ii. The threat of the new entrance…………………………….…25
           iii. The pressure from the substitutes………………………….…26
           iv. The power of the clients……………………………………...26
            v. The power of suppliers…………………………………….…27
       d. The different aspects…………………………………………………27
            i. The legal aspect…………………………………………....…27
            ii. The economic aspect…………………………………………28
           iii. The cultural aspect…………………………………………...28
           iv. The technological aspect……………………………………..28
            v. The environmental aspect…………………………………….29
III.   The internal environment……………………………...…………………30
       a. The diversity of products………………………………………..……30
            i. The consumer products………………………………………30
            ii. The professional products……………………………………31
           iii. The luxury products……………………………………….…32
           iv. The active cosmetics…………………………………………33
            v. The body shop………………………………………………..33
       b. The culture……………………………………………………………34
            i. According to the CEO………………………..………………34

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ii. The acquisitions………………………………………………34
          iii. The social responsibility…………………………………...…35
      c. The human resources…………………………………………………36
      d. The financial resources……………………………………………….37
      e. The risks……………………………………………………………...38
           i. The communication……………………………..……………38
           ii. The intellectual and industrial propriety…………..…………39
          iii. The financial risk……………………………………………..40
IV.   The marketing strategy………………………………………………...…41
      a. Portfolio of brands……………………………………………………41
      b. The performances in each country…………………………………...42
      c. The organization……………………………………………………...44
      d. The different geographic areas……………………………………….45
           i. The mature market…………………………………………...45
           ii. The emerging countries………………………………………46
          iii. The new borders……………………………………………...50
           iv. The 6th continent……………………………………………...51
      e. The different steps of the strategy……………………………………51
      f. The universalization………………………………………………….52
V.    The impact of the cosmetics brand……………………………………….54
      a. The wants of consumers……………………………………………...54
      b. The classification of the population……………………………….…55
      c. The definition of the beauty……………………………………….…56
      d. The universalization of the beauty…………………………...………59
      e. The environmental consequences………………………………….…60
      f. The future full of opportunities………………………………………62

                               4

Abstract

The topic of the thesis is the analysis of the international marketing strategy of a

traditional beauty brand: “L’Oreal”.

The purpose of this paper is the analysis of an international marketing strategy

through an example of company. L’Oreal is the leader on the market and it is

interesting to discover the inside of the success. The tools and the organization

required in a developed group are interesting to learn for a future professional

experience. Indeed, the marketing is linked to any other field of the company. So, the

analysis regroups also the financial side or social resources, for example.

Firstly I will start with researches in order to be acquainted with the company.

Secondly I will focus on the history and the environment of the market to understand

the strategy and its impacts. Furthermore, I will interview a professional from the

marketing field in France. It will permit me to have more details about the strategy.

Finally, the survey will be the last work I have done, because it will bring me to

another side of the group. What are the impacts of the marketing strategy on the

consumers?

The thesis is concluded by the opportunities of the “beauty products” industry. It

shows the possibilities of the future for the company, which builds on new

technologies, the niche of consumers and the new developing countries.

                                           5

In France, everybody knows L’Oreal with its slogan “Parce que je le vaux

bien!” Today, it is one the most famous brand in the world. However, hundred years

ago, it was a Parisian start-up, which has consequently changed thanks to its creator.

So, what is making L’Oreal a successful company?

In a few words, there are two sides in the company. The simplest side is composed of

its vision, values and communication. Indeed, L’Oreal has a strong strategy, to

develop its expansion and strength. But the brand has also a complex side, in

grouping all the different parts to make it works.

L’Oreal defines its mission as beauty for everyone. They want to engage themselves

to conserve the beauties of the planet. They believe this is a universal concept,

because they offer quality products in the whole world. For the company, beauty is a

language to express in order to define a personality. They also trust the science side,

by increasing frequently their researches to innovate in order to match with the needs

and wants of the clients.

The strategy of the brand aims at having a durable and stable growth. Thus, L’Oreal

has a world presence where they incorporated fundamental laws. Firstly, the products

have a high quality. Secondly, the social implications are the same in each division of

the group. Thirdly, the production has to minimize the toxic waste, to protect the

environment. And finally, each brand of L’Oreal needs to be a part of the foundation

for HIV or cancers for examples.

L’Oreal is an international organization, with 6 different poles: North America, West

Europe, Latin America, Africa/Middle East, East Europe, and Asia/Pacific.

Because of the growth of globalization, many companies want to adopt international

strategies. Only a few know a great success like L’Oreal. The brand distinguishes

itself thanks to its communication and innovation. It also took the right opportunities,

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with the developing countries, for example. They want to maintain the brand image

including beauty and comfort.

In 2014, L’Oreal had a turnover of 22.531 billions euros, with an increase of 3.7%.

This growth can be seen in every geographic area where the brand is located. Thus,

the company is the first global cosmetic group, which is present in over than 130

different countries.

1
    Financial report. (2014). L’Oreal. Retrieved, 2014, from www.loreal.fr/.

                                            7

I.      The history of L’Oreal

           a. The beginning with Eugène Schueller

The chemist Eugène Schueller created L’Oreal. Thanks to his entrepreneurial spirit,

the adventure started with one of the first hair dyes he invented. That is why, the

main objectives of the brand are still research and innovation for beauty. Eugène

Schueller graduated from Ecole Nationale Supérieure de Chimie of Paris in 1904.

After his engineering school, he had a new idea by creating his first hair dye with the

name L’Oreal. His creation was a real innovation at the time because it provided a

range of different colors. The company would later become L’Oreal, in 1909. His

determination and skill permitted him to sell his hair dye to Parisian hair stylists. He

also opened a hair coloring school in Paris to demonstrate his new ideas.

Finally, the war was over. So, the women worked and were more concerned about

themselves and their appearances. Indeed, hairstyles became fashionables. Thus, the

company appeared as a great success, even in Europe, United States, Canada, UK and

Brazil, in total: 17 countries. He believed his growth was based on research and

novelty.

In 1928, he started to manage the company Monsavon, it was the first move of

diversification for L’Oreal. He modernized, improved the quality and created an

advertising campaign of the brand. Later, the production site of Monsavon would

become the one of L’Oreal.

In 1931, competitors produced large containers with some risk of oxidization. In

contrary, L’Oreal innovated with the creation of individual doses. It was the best

solution for comfort and safety: targeting hair stylists and customers. The same year,

the company focused itself on promotional events and advertising campaign. For

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Eugène Schueller, there were two types of campaign depending on what you expected

to reach. On one hand there was “publicité d’attaque” to create an interest. On the

other hand there was “publicité de rendement” to increase the sales. The first idea was

to create a giant billboard on a Parisian building. Then, he used radio to sing its

commercial ad rather than speak. In order to attract more women to care products,

L’Oreal started a monthly magazine. “Votre beauté” was about women’s health and

beauty in order to develop a fresh approach.

Moreover, the company sold a real shampoo without soap named “Dopal”, still

known as “Dop” today. Eugène Schueller started a big campaign for hygiene. He

reminded to parents the importance of getting clean, that’s why he targeted children

through his ads. He was a man of trends, with Coco Chanel, he innovated the

practices of hair salon and came with a new lotion to create natural curls. Thanks to

all this modernization, the brand had the ability to reach new consumers.

In 1936, the introduction of the first paid holidays in the country allowed the company

to sell its new suntan lotion.

During the World War II, because of the strict rationing, cosmetics were used to boost

the moral of women. Even with the war, the company continued to grow. By the end

of this period, they were several chemists and distribution researchers inside L’Oreal

in UK, Argentina and Algeria. At the same time, the company hired François Dalle

and Charles Zviak from Monsavon. Those employees will play a key role in the

company.

In the 50’s, L’Oreal worked with Brigitte Bardot and Marilyn Monroe, as two blond

idols. This strategy had a huge impact: “the consumer boom”.

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Furthermore, the R&D group developed itself, and they worked on many innovative

products, like the coloring shampoo. The skin care products also interested the brand.

That is why they started to work with Vichy to finally acquiring it in 1980.

In 1953, Eugène Schueller received an Oscar in advertising, and then he died in 1957.

He decided to devise his business to his daughter Liliane Bettencourt and the

handover to François Dalle with who he worked for Monsavon. Thus, François Dalle

became the CEO of L’Oreal at only 39 years old.

           b. The pursuit of the dream

François Dalle was contently thinking about the future of the group. As a visionary,

the only factor of progress for him was to acquire new brands in order to increase the

position on the markets and distribution channels. He also focused on the main force:

Research and Development (R&D), in the interest of the company to reach new

consumers, internationals as nationals; with a beauty more accessible.

The 60’s marked the cultural and commercial revolution. Music and fashion were

trendy for teenagers. To respond to this demand, boutiques and chain stores opened.

The company grew up its investment in R&D and we counted 300 researchers at the

time. To go on the approach of skin scare, the brand started to work on cosmetic and

bacteriological facilities. With the increase of sales of hair-product, L’Oreal decided

to sell Monsavon. Thus, the company could concentrate on its main business.

Simultaneously, L’Oreal bought Cadoricin, it is a hair-hygiene brand, Jacques Fath

perfumes then Lancôme, Laboratoires d’Anglas, André Courrèges and Garnier.

Thanks to these acquisitions, the group gained some parts of the market share in high-

quality skin-care, make-up, perfume and hair-product. Today in many of those

                                          10

markets, the brand is the leader. With those resources, L’Oreal had the opportunity to

create several successful products.

15 years after the World War II, the firm was also interested to implement itself in the

Japanese market. The first approach concluded with a new partnership with the brand

Kabaysashi Kose. The group opened an office in Tokyo and then this new market will

bring a lot to the knowledge of the company. Indeed, consumer’s sociology,

competitors, distribution channels, Japanese esthetics, beauty conception and the

particularity of ethnic’s skins are some of those points L’Oreal will learn. However, at

this time, the first results were less interesting than those in America or Europe.

In the 70’s, the population was focused on health and fitness. That’s why the group

decided to invest in research with Nestlé. It also established the International

Dermatological Research Centre, in order to develop the knowledge on skin aging

process. In the continuation of the researches, L’Oreal builds a new company,

Plénitude, to offer the best innovations and technologies also against the effects of

aging.

The group continued its strategy of collaboration, by obtaining the Ralph Lauren

license for fragrances. It improved its position in the Luxury Products and fragrance

businesses. The group decided to change its structure with new operational divisions.

Then, it started to export the brand in the world: New Zealand, Australia, Japan and

Hong Kong. The internalization of L’Oreal was helped by the alliance with Nestlé. At

the same time, the group was still acquiring new markets as Biotherm, Germey Ricils,

Jeanne Piaubert, Roja and diversifying itself through complementary fields as

magazines. They also decided to use a new distribution network such as mail-order

catalogues, for example: Les 3 Suisses. Thus, the group created a catalogue of beauty

products named Club of Beauty Creators.

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The 80’s were good for L’Oreal. Indeed, François Dalle became the vice-president in

the administrative council of Nestlé, he won the award of the man and manager of the

year in chemicals and cosmetics field. A little bit after, he stopped working as the

CEO of the group. With the management of François Dalle, L’Oreal had opened

international fields in perfumes and beauty, cosmetic actives and public products. He

industrialized the brand from artisanal to Taylorism. He also turned the administration

to the new technologies and introduced L’Oreal to the stock market in 1963. It

allowed the stakeholders to (issue bonds and shares if they needed money) earn

money if they needed it. It also permitted the group to grow. But, this entrance

obliged a strict management and development of the finance.

This is Charles Zviak who took his place as a CEO. Therefore, he had the same age as

François Dalle so he was a man of transition because he could not stay more than 5

years as CEO. Thus, to succeed to Charles Zviak the choice was made on Lindsay

Owen-Jones, the manager of the brand in North America. During this time, the brand

decided to change the organization. Indeed, the Perfumes and Beauty division was

divided into 3 others: Lancôme and Piaubert, perfumes and active cosmetics, in 5

different locations. Because of the big increase in the group, the finance control

needed to be centralized. This is how L’Oreal Finances was created.

           c. The expansion

Then, in 1988, Lindsay Owen-Jones became the CEO of the company. The last

acquisition for the 80’s was the Laboratoires Roche Posay, which is specialized in

skin-care. However, in order to maintain the group in a main area of interest, L’Oreal

decided to sell some components, for example personal hygiene.

                                          12

The decade after, the market of cosmetics and the competition increased. Thanks to

the contract with Nestlé, the brand had an advantage, but it was still vulnerable in the

Western market. Thus, the new CEO had as objective to make L’Oreal a big

international company. She build a new organization, indeed she integrated a

worldwide team to adapt itself to each consumer. She also started to cross the brands

of the group and the divisions as for Lancôme Niosome. The innovation, the new

technologies were adapted to reach mass market. Therefore, the synergies allowed the

company to grow its profit. Moreover, even if US market represents 1/3 2 of the world

cosmetic market, the US dollar was weak. That’s why L’Oreal decided to target the

Japan and the Soviet Union. Thanks to a joint venture with the Russian, the brand was

one of the first to open a shop in this market. At this time, the organization stayed

stable to facilitate the 5 divisions to integrate many worldwide markets. It was a

decentralized group excluding R&D and management control fields.

In 1989, a new trend started for the protection of the environment. Thus, the

consumers put an important pressure on the group to delete some components and

stop the animals testing. The group was also fighting its main competitors

Proctor&Gamble and Unilever to keep its domination. For those reasons, L’Oreal

became environmentally friendly and increased its advertising budget. Then, the

company changed its products to make them more accessible.

One of the other moves to solidify its market position is the purchase of Maybelline

and two others drug companies. Maybelline allowed L’Oreal to have a great turnover

outside USA because the brand image of Maybelline relates to a modern and dynamic

woman. In order to integrate the US market, the firm introduced a new division of

products through Garnier, for example. These acquisitions represented the key

2
 Collin, B., & Delplancke, J. (2015). L'Oréal: La beauté de la stratégie. Paris:
Dunod.

                                          13

element in the strategy of the group. Indeed, it permits to increase the knowledge and

the presence while buying local companies. So the group can reinforce its identity on

the market, and become more popular worldwide. As it always did, the group used the

hair-care products to enter in a new market. However, to develop its products in the

Japanese market, it used the growth of the country’s economy. Moreover, in order to

promote its brand as Studio Line, Elsève or Free Style, the firm utilized the European

woman more than Japanese.

In the 90’s, the group centralized its activities and research centers to create Nihon

L’Oreal, it sold top of the line products with a selective distribution.

In 1998, the famous advertising campaign “Because I’m worth it” was launched. With

the several series of acquisition, the company was a part of the top four brands in the

world.

The company also worked with charity association as UNESCO to recognize the

sciences work of women in the world. Therefore, it was the beginning of social

responsibility for the group.

To integrate the African market, the firm bought SoftSheen an American afro hair-

care brand. It was seen as one of the main opportunity to grow in the cosmetic

industry. The merger of this new purchase with Carson allowed L’Oreal to intensify

its presence on the African continent and to become the leader in the afro hair-care

products.

At the same time, the group was focused on the Asia and Eastern Europe markets and

the brand Maybelline worked well in China. However, during the 90’s, because of the

economic crisis in the Asia region, the group became interested in the Latin America

market. During 1999, the group recorded a great increase of products sold and one of

the biggest profits of the decade.

                                            14

In 2002, L’Oreal created the “Ethnic Hair and Skin Research” in Chicago. It was the

first research center for ethnic skins and hair-care products. Chicago was a key place

because it regrouped many different ethnics, it was also close to Howard and

Northwestern universities. Moreover, Cosmair turned into L’Oreal USA. This change

of name permitted to regroup all the activities and to incorporate US businesses as

part of the firm.

Still in 2002, L’Oreal was in the center of the news, its CEO, Lindsay Owen-Jones

was elected “Manager of the year”. All this exposure was due to one of the best

growth of the company. Indeed, the news related the capacity to be present on many

markets and distribution channels, the quality of research, the acquisitions, the

management, the weak indebtedness… The key tool of the strategy is the brand

management. It means to acquire many firms, which allow L’Oreal to be present

worldwide, and to increase the competitions without cannibalization. The turnover of

L’Oreal is divided 3 main areas: Europe represents 50% 3 , 30% for the North

American and 20% by the rest of the world.

            d. The challenge of nowadays

Back in 2006, the new CEO was Jean-Paul Agon, he took the place of Lindsay Owen-

Jones. When he became the CEO, L’Oreal had a double crisis: the economic crisis

and the familial crisis. That’s why, he would define others visions, values in order to

adapt the company to those changes. Beauty was put in the center of the identity.

Indeed the main goal of the brand was to offer innovative cosmetics and quality

3
 Rapport financier annuel. (2015). L’Oreal. Retrieved November, 2015, from
www.loreal.fr/.

                                          15

products while responding to ethnic needs. The brand adopted a universalization

strategy to accommodate itself to the diversity.

L’Oreal would have a conquest spirit to seduce new consumers and double the target

for 2022. The emerging countries like India, Brazil, or China allow this ambitious

goal. They have specific needs known and a new envy of beauty thanks to the

increase of the middle classes.

The firm would also be based on innovations. Indeed, the innovation is linked to the

science and marketing. Before started, the brand must know the habits, behaviors and

specific needs of the target consumers. Then, it will research through many partners

and relations in order to obtain a new adapted product.

Finally, L’Oreal would suit to any diversity. It corresponds to the social

responsibilities, like durable innovations, equity woman and man for example. Even

with many changes, the group keeps a clear vision and goal. The economic crisis was

hard, but surmountable, it was seen as a turn in the organization. Thus, L’Oreal

regroups identity and diversity. It has always been faithful to its values and respectful

to the diversity. (Appendix: Table 1)

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II.     The external environment

The marketing environment regroups the actors and forces outside of the company

that have an impact on the relationships with the target consumers. It is divided

between the microenvironment and the macroenvironment.4 The microenvironment is

composed of the internal actors of a company, as the competitors for example. The

macroenvironment gathers the external forces as the political or technological, for

examples.

This section will define the macroenvironment of the company L’Oreal in order to

understand its opportunities and threats.

            a. The market

L’Oreal is a brand in the cosmetic market. This sector groups all the set of products

and substances to beautify the body. Some of them are utilized for the hairs, the nails,

the skin, or as perfume and make-up. It is complex because there are many different

activities represented like laundry, fashion designer, or food. To define this market,

we use the words: “beauty products”. In the world market of the cosmetics, there are 5

distributions channels, which are retail, selective distribution, professional channel,

medical channel, and direct sale. The selective distribution is used for all the luxury

products but also the travel retail. The professional channel is utilized for the

professional products, like hairdressing salon, or spa. The medical channel involves

pharmacy, or doctors. The direct sale corresponds to the specialized shops, door-to-

4
 Kotler, Armstrong, Saunders, & Wong. (2002). Principles of marketing (3rd ed.).
Upper Saddle River, NJ: Pearson Prentice Hall.

                                            17

door sale, and e-commerce. With its strategy, L’Oreal is present in the set of products

and distribution channels. It occupies a position of leader in cosmetics without expand

the brand to others sectors. Indeed, the market can also be divided into 3 different sets

of companies. (Appendix : Image 2.1)

           b. The different types of company

                   i. The “players”

Firstly, the “players”, they use a limited distribution channels, for example: Estée

Lauder. They focus their divisions on perfumes and cosmetics, which represent 70%5

of their turnover. The companies in this group look alike in their strategy. To answer

to a new trend, they decided to produce some natural products, resulting in creating

new divisions or acquired new brands. Developing countries are one of the priorities

in their development. They also spend their budget in R&D to increase their capacity

of innovation. The main companies are situated in North America, Japan and Europe.

The 3 most important firms in North America are Avon, Estée Lauder then Coty.

Avon was created in 1886, this firm sells cosmetic products but also decoration,

cleaning and lingerie using private sell as distribution channel. For its cosmetic

products, the price positioning is middle and high end, which allows the brand to

realize more than 74%6 of its turnover in this field. The main turnover was made in

North America and today the brand try to integrate emerging countries. Even if, in

Brazil the company is dealing with some issues, it realizes great sells in other country

as in Russia. The major problems of the firm are firstly the local market, which is a

5
  Collin, B., & Delplancke, J. (2015). L'Oréal: La beauté de la stratégie. Paris:
Dunod.
6
  Annual Report. (2015). Avon. Retrieved, 2015, from
http://investor.avoncompany.com/GenPage.aspx?IID=3009091&GKP=210234.

                                           18

big competition and secondly its distribution channel. Indeed, Avon had to change it

for the Chinese market. The new model of distribution is hybrid, it combines shops

and direct sell. Moreover, in order to satisfy the local needs, the brand acquired new

products more natural.

At the opposite of Avon, Estée Lauder is using the selective distribution to gain some

market share. The group defines its goal as an answer to the consumer needs and its

evolution through investments. Indeed, the brand imposed itself thanks to several

acquisitions and the quality of its products. Its position is high end, they dispose of all

range of products and types of client. The group also developed some brands on

others distributions as retail and professional for hair and health. Today, the group is

focused on the travel sector in order to reach new countries. In fact, the firm is

situated principally in Europe, America then Asia. Like the previous competitor

Avon, Estée Lauder is targeting the developing countries, and the future markets as

Africa or Middle East. One of the main advantages of this competitor is its financial

stability too.

Finally, the third most important company in North America is Coty. Historically,

Coty was founded in France. It was bought by the pharmaceutical brand Pfizer then in

1992 it became the propriety of Benckiser, a German firm. Since then, the head office

is in New York. Today, the main objective is the acquisitions of firms and patents and

they already have more than 50 pharmaceutical businesses. Recently, they tried to buy

Avon, which was not successful. Coty is also developing its presence on the new

markets, which represent only 12%7 of its turnover.

In Japan, the most important firm is Shiseido. The turnover of the company, mainly

realizes in its own country, is situated between the one of Estée Lauder and Coty, far

7
 Coty, factsheet. (2015). Coty. Retrieved, 2015, from
http://investors.coty.com/phoenix.zhtml?c=251569&p=irol-irhome.

                                            19

behind Avon. In Japan, the brand is selling with a retail distribution, however, it’s

using another strategy for its international business. It’s present in Europe and North

America with luxury products through its name. At the opposite in China the firm

works on retail with local brands. L’Oreal bought some of its acquisitions, because its

organization requires clarity.

In Europe, France has 3 main firms, aside L’Oreal, on the market of cosmetics.

The first one is Yves Rocher. It is a familial group, which is selling its products

through franchises. Almost the half of the turnover is made in France. The strategy of

the brand is to reinforce its position in natural products, as its competitors, they are

following the trend. Yves Rocher adapts its distribution to each country. Indeed, it is

using malls for India and private sells for Mexico, for example. The main force of the

brand is its position, which is solid.

The second business in France is Clarins. At the contrary of Yves Rocher, the brand

realizes 80% of its turnover outside France. The company is selling care products

mostly, then perfumes and makeup.

The third firm is L’Occitane en Provence. This group is specialized in natural

products, with a selective distribution. It has made 3 acquisitions in order to target the

French and European markets. The brand is also well present worldwide.

Then, the main competitor in Germany is Beiersdorf. Mostly present in the cosmetics,

the company own Nivea in retail. However, it is also specialized in the luxury

products and dermo-cosmetics. The group has a real success in developing countries,

even if the competition is hard. To compete it, Beiersdorf decided to focus its

products on face and body.

Finally, the last competitor is in Spain, the name of the brand is Puig. It’s a familial

group which is positioning on different markets as high end perfumes or makeup, for

                                           20

example. To develop more opportunities, Puig is investing in R&D. Because of the

economic crisis in Spain, the brand is working mostly with Latin America.

                   ii. The luxury group

Secondly, the luxury group, they are present on the luxury market, not only cosmetic,

like LVMH. The activities of this group are composed of jewelries, accessories,

leather goods, wines, alcohols, perfumes and cosmetics. The perfumes and the

cosmetics permit them to make their investments profitable. However, cosmetic

products get less benefit from the luxury image of these brands. Indeed, consumers

prefer the innovation and the scientist’s guaranty. The health of the company is based

on the strategy. In fact, it depends of the manager. Even if, perfumes allow L-Oreal to

have a great turnover, it is not the case for the luxury cosmetics. Fragrances benefit

from the image of the business. However, a group as LVMH can make profits from its

sector through important acquisitions, which is giving knowledge and presence in the

market. As for the “players”, the luxury group is targeting emerging countries, with

travel retail or local markets, in order to increase the turnover. The main competitors

are situated in France and Switzerland.

On one hand, in France there are LVMH and Hermès. LVMH is the leader on the

luxury market thanks to a good strategy of acquisitions. The main advantage of the

group is its presence in wine, spirits/Liquor sectors and in selective distribution. Thus,

LVMH has a great position on many sectors. On the market of cosmetics, there are 3

types of acquisitions. The first one is prestige with Dior, the second one is based on

trends as Fresh and the third one is cultural, it depends of the symbols as Loewe in

Spain. The half of its turnover is made in Europe, even if the group has a good

                                           21

international position. Like others competitors, the firm is targeting the developing

markets, through acquisitions in the travel retail and the development of the trendy

natural products.

At the opposite Hermes is a familial business and it is also present on many markets.

It diversifies thanks to the cook and design and leather goods. The image of the brand

is based on the perfumes, because it doesn’t produce any cosmetic.

On the other hand, there is Chanel, which is Swiss. The Wertheimer family manages

the group because one of the members of the family helped Coco Chanel to start her

business. In order to expand fields and knowledge, the brand acquired many products

in jewelries and accessories. The turnover is based on the perfumes and cosmetics,

mainly in Europe. It develops in emerging markets like China and Russia. The group

is dealing with some issues with the cosmetics, because it doesn’t answer to the actual

needs of the clients who are looking for innovative products.

                    iii. The diversified companies

Finally, the diversified companies work in the health beauty and also in the alimental,

as Johnson & Johnson. The companies in this group look alike due to their strength of

financial and commercial actions. But, the performances in this sector are mixed

between the brands. The medical channel gets more results than the companies in the

retail distribution. Indeed, the consumers are more attracted by pharmacy’s products,

because of their value for money and serious guaranties.

L’Oreal is not present in these groups. Indeed, each strategy, between the businesses,

is different in order to diversify them. There are the developed countries which

represent a mature geographic area, and the developing countries which are the most

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attractive to increase the turnover of the company. Thus, this industry has many

competitors. It is hard to develop its business, that’s why the firms look alike.

Acquisition and innovation are the key competitive advantage. The main competitors

are situated in the United States, United Kingdom, Europe and Japan. The most

important are Procter&Gamble, Johnson&Johnson in USA, and Unilever in England.

Procter&Gamble is present one many different markets as house cleaning, food,

beauty products, baby care and health. The goal for the group is being more

specialized in cosmetics, to the detriment of the foods, in order to have a better

increase of the turnover. The strength of the company is built on its acquisitions and

its innovations through investments in R&D. The firm is not only targeting the

developing countries but also the new industrialized ones. It is an old company. In

fact, before it was the leader in advertising, today it seems to deal with some

innovation issues.

Then, Johnson&Johnsonn is the second most important American business in the

market. As Proter&Gamble, it is present on many sectors, mostly health and body

care. It is concentrated on the medical and natural products to target the developing

countries.

The third main competitor is Unilever, the British company. At the opposite, of the

previous businesses, Unilever is mostly present on 3 sectors: food, house cleaning and

body care. To reinforce its position in retail and others countries, the group made

some several acquisitions as Alberto Culver. The main force of the firm is its oldest

presence of the emerging countries, which now represent 58%8 of its turnover.

8
 Strategic Report. (2015). Unilever. Retrieved, 2015, from
https://www.unilever.com/investor-relations/annual-report-and-accounts/#ara2015-
downloads.

                                         23

Kao is the Japanese group in chemical and retail products. The beauty sector creates

18%9 of its turnover. The business adapts itself to each market. Indeed, in USA it’s

selling in retail however in Europe it produces luxury products.

At the opposite, Pierre Fabre, the main French competitor, is specialized in

pharmaceutical. Mostly present in Europe, it is targeting the developing countries.

To finish, Henkel is the main firm in Germany, essentially specializes in retail.

Thus, the market of cosmetics is oligopoly. Indeed, it is composed of a limited

numbers of big companies, which dominate the market. There are also some little

companies, which work locally.

This industry has many competitors worldwide. The rivalry from the competitors is

high. Indeed, the industry of cosmetics is in constant evolution, there are always some

new products. The market is mature in Europe, Japan and America. The competition

is based on the development of the firms worldwide. Thus, cosmetics are linked to

novelty, at the opposite luxury is used to promote, as an image, for the company in

order to gain the fidelity of the clients.

            c. Porter’s five forces

“Porter’s five forces” is an analysis tool that defines the intensity of competition

inside a specific industry. In fact, for L’Oreal, it allows evaluating the competitive

position through its strengths or weaknesses.10

9
  Annual Report. (2015). Kao. Retrieved, December 2015, from
http://www.kao.com/jp/en/corp_ir/reports.html.
10
   Strategic Management Insight. (n.d.). Retrieved May 04, 2016, from
https://www.strategicmanagementinsight.com/tools/porters-five-forces.html

                                             24

Even if, there is a strong competition, the industry stays attractive thanks to the

development of many fields. (Appendix: Table 2.2)

                    i. The intensity of the competition

There are many competitors in the cosmetics industry. Each of them differs by their

nationality and size. This oligopoly market is composed of multinational companies

and very small ones, which usually target a specific niche.

Moreover, there is a strong capacity of development thanks to the emerging countries,

on account of the new tendencies and the e-commerce. Thus, the competition is strong

in this industry.

                    ii. The threat of new entrance

The threat of new entrance determines the degree of difficulty to enter inside a

market. Indeed, this one is weak, because of the barriers to enter in the market.

Cosmetics industry has expensive prices related to high cost of production, marketing

or research. The market is mature, and consumers want a permanent progression of

the products. Thus, many firms are utilizing patents to block the access. The new

entrants could work if they differentiate themselves, but it will be very difficult

without a brand image and enough finance. It is a risky market because 80 to 90%11 of

the new companies disappear after 18 months.

11
   Béatrice Collin. (2013, June). L’Oréal ou la construction d’un positionnement
unique et durable : Une étude empirique du secteur des cosmétiques. Retrieved from
http://www.strategie-aims.com/events/conferences/23-xxiieme-conference-de-l-
aims/communications/2938-loreal-ou-la-construction-dun-positionnement-unique-et-
durable-une-etude-empirique-du-secteur-des-cosmetiques/download

                                          25

iii. The pressure from the substitutes

The pressure from the substitute products is not present on each sector. Indeed,

consumers have less quality needs for shampoo, for example, so most of them will

buy it in supermarkets. Besides, the “perfect” beauty can also be reach by the plastic

surgery, injection or others medicates. And moreover, the body care is able by the spa

and massages. Finally, the pleasure can be achieving through others products as

accessories. However, when the products require more technology, there is low

pressure because they depend on the brand image and its R&D. In general, there is no

decrease of the consumer needs for cosmetics.

                  iv. The power of the clients

For L’Oreal, there are 2 types of client: the distributors and the consumers. The

distributors are different on each division of the group. The sell can either be in the

shops and online. Moreover, they have a national presence compared to the company,

which is present worldwide. Thus, their power is weak.

However, the power of the clients is high for the industry. They call for good quality

products, because they are related to their health care. Even if, they like cheap price,

the most important criteria is the quality. The target is mostly feminine, generally it is

demanding for freshness. But, today, there is an increase of the demands from the

men and old persons, which the market has to adapt too. Because of this growth,

L’Oreal develops new range of products and reinforce its communication toward

these target audiences.

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v. The power of suppliers

At the contrary the power of suppliers is low. Indeed, there are too many suppliers to

have an impact on the market. There are different types of suppliers for L’Oreal.

Firstly, the chemical substances manufacturer are scattered. Secondly, the packaging

producers have also a limited power. Finally, there are the communications agencies.

Thus, many of them depend of the cosmetics market, they are linked to the firms. The

changes from the suppliers could have disastrous impacts on the quality of the

product. However, it is little compared to the size of the groups.

           d. The different aspects

The examination of the external forces shows how they affect the marketing strategy.

                   i. The legal aspect

The legal aspect represents the laws that have to been followed by the company to sell

its products. They differ in every country. For example, in Europe, the laws are

focused on the health care. The products have to be transparence about their

composition. Thus, the main groups of the market must be careful with the legislation.

It can also touch the productivity with work laws.

                                           27

ii. The economic aspect

The economic aspect corresponds to the income, the inequality and the evolution of a

country. In France, for example, the cosmetics industry represents a important

advantage for the economy. Even during an economic crisis, the market is in

perpetual increase.

                  iii. The cultural aspect

The cultural aspect also based on social aspect. It is determined by the way of living,

the local tastes but also the demographic and the health. Indeed, in the world there is a

growth of oldest persons. The firms have to adapt and inform themselves to increase

the sells. In the industry, there is also a new demand from the man. Even if, the

companies need to be preoccupied by those changes, because cosmetics are also

influenced by others sectors, the businesses need to keep their identity with their

development.

                  iv. The technological aspect

The technological aspect is based on the evolution of the innovations, the investment

of a company and its R&D. Indeed, the growth of those is very high. In order to stay

competitive the innovations are required. The company needs to change the inside

organization to adapt to novelty. Thus, each level of the firm is concerned. It’s still a

                                           28

main advantage, because others competitors have difficulties to catch the innovation.

This aspect also has some impacts on the chemical formulation of the products.

                  v. The environmental aspect

The environmental aspect concerns the consumption of the energy and the protection

of the environment. The cosmetic products have to take care of the body and the

environment of the consumers. There is much different legislation about this. Each

year, there is a new substance, which is deleted from the legal list of production.

Indeed, the groups are regularly controlled. Today, it can also be a marketing

advantage to have natural products. Moreover, the consumers are more and more

informed and concerned about the environment. (Appendix: Table 2.3)

                                         29

III.   The internal environment

The marketing objective is to create a customer satisfaction. In order to reach this

objective, the company has to build relationships inside its own departments. All

these actors might create advantages to increase the market shares, and thus the

turnover.

            a. The diversity of products

The distribution channel is the process of making the goods or services available for

the consumer. Thus, this function consists to move the products or services from the

production area to the consumption of the client.12

Indeed, L’Oreal wants to be present everywhere. Therefore, it proposes to the

worldwide population, products according to their needs, cultures, and beliefs. In fact,

diversity is one of the main keys in the strategy of L’Oreal. To answer to this

diversity, the brand is separated in 5 divisions: Consumer products, professional

products, luxury products, active cosmetics, and the body shop. (Appendix: Table 3.1)

                   i. The consumer products

The consumer products are the one with accessible prices. They are targeting the most

important number of population. Thus, there are selling in the retail chains, and

supermarkets. This division is also using high technology to innovate and target

12
  Armstrong, G., & Kotler, P. (2000). Marketing: An introduction. Upper Saddle
River, NJ: Prentice Hall.

                                          30

middle classes population. It is composed of several brands: L’Oreal Paris, Garnier,

Maybelline New York, Softsheen-Carson, Margic, Essie and NYX. Today, there is a

little slowdown in this division since 2014. Makeup is the first category of this

division but hair and facial care are in the center of the growth especially in South

Asia. To counter this decrease, the brand made some acquisitions in the market.

Indeed, they acquired 3 new brands to reinforce the division in strategic countries.

These companies are Magic, NYX and NIELY. However, hair care made a strong

performance thanks to L’Oreal Paris and Garnier. In fact, these shampoos are having

a great expansion in developing countries but also in the United States and United

Kingdom. Withal, in Asia, there is a facial care, which is well working. Thanks to the

high quality products adapted to their needs, the general public is satisfied.

Moreover, this division is focused on the digital side. On one hand, the social media is

able to share the practices. On the other hand, it permits to communicate about the

products. The main turnover of the e-commerce side is made in China.

                  ii. The professional products

The professional products are for hair salons. There is much diversity, which

corresponds to specific demand from professional hairdressings. Indeed, the products

are selling in beauty salon professionals all over the world. This division contains

different acquisitions from L’Oreal: L’Oreal professional, Kérastase, Redken, Matrix,

Pureology, Decléor, Shu Uemura Art of hair, Essie, Carita and Mizani. Thanks to the

acquisition of Decléor and Carita, the division of professional products is now present

on every market. Indeed, those categories are: hair, skincare and nails beauty.

Consequently to this development, the brand needs to adapt itself according to the

                                          31

geographic area. It must be dynamic and develop professional products in the new

markets. To build the expansion, L’Oreal is working on 3 different areas: the

education, the expansion of distribution channels and attractiveness. Indeed, the

education is the most important way to expand the market. It participates to the

training of the beauty professions.

The category with the main increase in 2014 was hair care. This was allowed by the

many innovations adapted to the women needs.

                  iii. The luxury products

The luxury products are divided in 3 parts: skin cares, makeups and perfumes. The

particularity of this division is it selects the distribution channel. Indeed, it has to be

coherent with the quality of the product, the price and the target consumers. That’s

why, it utilizes a selective distribution with an excellent service adapted to each type

of clients. This division is composed of different companies bought by L’Oreal:

Lancôme, Giorgio Armani, Kiehl’s, Yves Saint Lauren, Biotherm, Ralph Lauren,

Urban Decay, Clarisonic, Shu Uemura, Viktor&Rolf, Diesel, Cacharel, Helena

Rubinstein, Yue Sai, Guy Laroche, Paloma Picasso and Maison Martin Margiela.

Last year, the performance was great with a growth of 7.1 %13 in this market. There is

a different paradigm in the luxury sector, it corresponds to the new luxury. The new

luxury is more dynamic, indeed, it is using the new technologies. The digital side

allows being more interactive with the consumers. In this division L’Oreal knows a

good development, more particularly in Makeups and female perfumes. In fact,

L’Oreal is often at the beginning of new trends in those two sectors, thanks to its

13
 Rapport financier annuel. (2015). L’Oreal. Retrieved November, 2015, from
www.loreal.fr/.

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